AUD/USD pair to trade around 0.77 by the end of the month

David Forrester, G10 FX Strategist at Macquarie Bank Ltd, on Australian economy and AUD

A recent study by Beyond Zero Emissions suggested that Australia has a 50% chance of systemic economic crisis (which means high unemployment, high debt and deep recession) caused by ignoring the global shift to clean energy. Do you consider this shift as a great opportunity for the Australian economy to grow in future? At what cost could this shift take place?

The main problem with the move to green energy in Australia is a large assumption that there is going to be a big turn to it within the whole Asian region, which is not good news. About 20%, or one fifth, of Australian exports are coal, which is considered to be the most unclean of the whole exports, although Australia does have a little invention making the coal quality much higher, leaving the whole picture with an advantage. Yet it is clear that in case of a large shift to the green energy, Australia will have to find some other export revenues. As a matter of fact, they are already doing this. Australia could switch more into agriculture exports, which some mining companies are already doing.

What other factor will be the key determinants of the Aussie behavior in Q2 of 2015?

Generally the key factor remains the FOMC, when they will actually begin to normalize rates. The market has squeezed the Aussie higher, partly on a belief that the Fed is not going to start raising rates in the month of June quarter. I think the Fed is probably the single largest factor out there for the Australian currency going forward.

What are your forecasts for the EUR/AUD, AUD/USD and AUD/JPY in the short and long term?

For the Aussie we have one, three and six- month forecasts. We expect to see AUD/USD pair to trade around 0.77 by the end of the month, at 0.76 in three- month period and 0.74 in half a year. Meanwhile, EUR/AUD will probably reach 1.40 in one month, 1.39 in three months and 1.41 in six months. As for the Japanese Yen versus the Aussie, we look for 0.94, 0.95 and 0.95 for the same period, respectively.